Chapter 4: Focus on Solutions

Overview

IBM is a solutions company. We start with a customer's business problem, and work back to the right combination of technologies and expertise.

—LOU GERSTNER, former CEO, IBM

So there was IBM, the company that had led the prior phase of computing and had invented many of the industry's most important technologies, crawling out of bed every morning to find its relevance marginalized by the darlings of desktop computing.

—LOU GERSTNER, March 2002

What Would Lou Gerstner Do?

In the seat of the CEO: You are the senior partner of a three-person law firm in a large town located within 30 miles of Chicago. You started the business more than 20 years ago, after spending 10 years working your way up the ladder of one of Chicago's hottest law firms. Rather than go the partner route, you decided to hang out your own shingle back in your hometown.

At first, the bulk of your business involved closings and other real estate transactions. Because the town had been mostly farmland for a century, your practice thrived, since there were many new homes popping up and there was strong demand for a sharp attorney who knew the real estate market. The growth of the residential population enticed several new small businesses to set up shop in the area, so you soon brought two new attorneys into the practice: one who could help with the backlog of residential and commercial real estate closings, and another who specialized in legal services for small businesses. Over the next decade, your firm became one of the best known and most successful in "town," which now had more than 100,000 citizens.

During the last 2 years, however, business has slowed dramatically. This is puzzling. After all, the town has never been stronger economically, as three Fortune 500 companies have moved major operations into the town, providing thousands of new jobs. The expanding presence of those companies has attracted younger people, both single and married, into the community, and you've been assuming that the influx of new homeowners would send your real estate business soaring. That's not happening. These newcomers aren't approaching your firm for legal services, whether real estate-related or otherwise.

To help get to the bottom of this mystery, you meet with your two fellow attorneys to discuss the situation. None of you can figure out what's going wrong. After all, your firm has been on top for years, and it has undeniably established the reputation of being the best around in real estate law. But business continues to fall off—so dramatically, in fact, that there is not enough work for all of you.

Reluctantly, you let one of the other attorneys go. You know that unless things improve soon, you will be forced to let the other one go as well.

What has happened? What accounts for the drop-off in business? What do you do?

What would Lou Gerstner do?

Thomas Watson, the founding genius of one of the largest corporate entities ever assembled, once told his colleagues to "aim high, and think in big figures."

When he referred to "big figures," Watson surely was not thinking of big losses. But that was exactly what corporate colossus IBM was facing in 1993. And it wasn't just a run-of-the-mill big loss, but the largest annual loss in corporate history to date—an eye-popping $8.1 billion.

The once-dominant computer company not only was deep in the red, but was sinking under the weight of its own ineptitude. The industry's long-time leader had failed to grasp the changes transforming the computer industry, and was thoroughly demoralized. Andy Grove of Intel said, "It's hard to describe how beaten down that company was." The IBM board, in desperate need of a new leader, put together a short list that included corporate heavyweights such as Jack Welch, Bill Gates, and Ross Perot. Ultimately, however, they zeroed in on Louis V. Gerstner, CEO of RJR Nabisco.

When the announcement came that IBM's board had named a former snack-food king to succeed John Akers (IBM's previous CEO, whom many had blamed for the company's troubles), the response was a mix of disbelief and consternation. Wall Street sneered, company insiders grumbled, and just about everyone was convinced that the board had made a huge mistake. (Even Gerstner later admitted that he, too, was afraid that the board had made a mistake.) Critics derided Gerstner for his lack of experience running a technology company, much less the world's most important computer manufacturer.

The Gerstner-bashing, spearheaded by the media, went on for weeks. The press questioned Gerstner's fitness for the position. In Q&A sessions, media representatives peppered him with questions intended to test his readiness for the top post at IBM—and perhaps even to trip him up. But Gerstner (publicly, at least) demonstrated guts and patience. For example, when asked for his vision of the future IBM, he responded:

The last thing IBM needs now is a vision.

The company was hemorrhaging, and Gerstner knew that he had to apply tourniquets before planning the patient's future. He had to pull off the greatest turnaround in corporate history—but first, he had to make sure that the company would not be torn into pieces.